How to Ruin Your Retirement Savings

There's no shortage of reasons why Americans don't have enough money saved for retirement: The stock market's volatile performance, the declining popularity of pensions and high cost of living are all culprits. Some people across all income brackets, even the highest, could run out of retirement funds at some point during their retirement, reports the Employee Benefit Research Institute, and low-income individuals are most at risk. Three in four Americans in the lowest-income quartile will run out of money after 10 years of retirement, EBRI projects .

To avoid becoming part of those depressing statistics, consider steering clear of these five common mistakes:

1. Having children. Children provide meaning and value, of course, so we aren't actually suggesting that you avoid parenthood altogether. But it can help to consider the financial ramifications in advance, and prepare accordingly.

The latest figures from the U.S. Department of Agriculture, which were released last year, show that middle-income parents now spend around $241,080 on the first 17 years of their children's lives. (The figures are calculated for children born in 2012.) The extra costs associated with children, including health care, food, housing and clothing, can funnel money away from long-term retirement savings, making it harder for parents to catch up later.

2. Waiting too long. Financial advisors find that people often delay saving for retirement until their debts are paid off, but that can mean sacrificing many years of compounding. Instead, advisors usually recommend opening a tax-advantaged retirement account as soon as you start working, even if you save just a small amount each pay period. Saving those small amounts, even $25 per paycheck, for example, can help get a retirement account going, and employer contributions can help even more.

3. Failing to calculate a retirement number. Only one in 10 people make such a calculation, according to the Transamerica Center for Retirement Studies. That might explain why survey after survey shows that Americans are far behind on meeting retirement savings targets. Financial advisors generally agree that retirees need to replace 80 percent or more.

That means someone who brings home an $80,000 salary at the peak of his working years should save enough before retirement to generate at least $64,000 a year post-retirement. An investment, such as an annuity, that generates a 3 percent annual return would require savings of at least $2.1 million to throw off that sum annually. (Retirees can also supplement their income by continuing to work, as well as with Social Security payments and pensions.)

4. Investing too conservatively, or too aggressively. Twenty-somethings shouldn't have most of their retirement investments in bonds, or other conservative assets that barely keep up with inflation, and conversely, soon-to-be retirees should not have most of their nest egg in the stock market, which can drop unexpectedly at a moment's notice. Advisors generally recommend shifting into a more conservative portfolio as you age; a 30-year-old might have 30 percent in bonds and 70 percent in stocks, while a 70-year-old would have the reverse mix.

5. Failing to anticipate a long life. With life spans on the rise, retirees can count on living another 20 or 30 years or longer post-retirement age. That means they need even more savings than their parents' generation. Rising health care costs also eat up those funds, so erring on the side of a bigger retirement fund is essential.

If you find all this advice confounding, consider this strategy: Just save 18 percent. That's the savings rate a medium-earner ($43,084 in 2010) would need if he or she starts saving at age 35 and plans to retire at age 68 (assuming a 4 percent return on investments), according to the Boston College's Center for Retirement Research.

The center finds that the two most important factors for creating a retirement nest egg are someone's savings rate and the age of retirement. "If people could work until they're 70, they would have a much higher chance of having a secure retirement. Social Security is higher if you wait until age 70, and it gives your 401(k) assets a longer chance to grow, and it reduces the number of years you have to support yourself," says Alicia Munnell, the center's director. Less important was the rate of return earned on investments.

So don't despair if your investments are still recovering from the last recession. Just start saving now, to make up for any lost time.